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The Role of Distribution of the Income Shares of Individuals in Tradables and Nontradables on Exchange Rate Fluctuations and Delay of Stabilizations

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Author Info
Aysan, Ahmet Faruk

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Abstract

This paper shows that exchange rate alignments are also used for the redistribution of income among different groups. The heterogeneous impacts of stabilization policies lead to formation of various coalitions throughout the evolution of stabilization programs. These coalitions can produce unsustainable economic policies at the expense of other groups. The model categorizes these various groups with respect to their shares in total production of tradables and nontradables. An increase in the relative prices of nontradables benefits the poor more than the rich and middle classes. In addition to the poor, the rich benefit from unsustainable macroeconomic polices by lending to the government and eventually escaping the cost of stabilization in the long run.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5485.

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Date of creation: 2006
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Handle: RePEc:pra:mprapa:5485

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Related research
Keywords: Stabilization policies; Overvaluation; Redistribution; Exchange Rate Fluctuations;

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Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
F30 - International Economics - - International Finance - - - General
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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  1. Mendoza, Enrique G. & Uribe, Martin, 2000. "Devaluation risk and the business-cycle implications of exchange-rate management," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 53(1), pages 239-296, December. [Downloadable!] (restricted)
  2. Rodrik, Dani, 1999. " Where Did All the Growth Go? External Shocks, Social Conflict, and Growth Collapses," Journal of Economic Growth, Springer, vol. 4(4), pages 385-412, December. [Downloadable!] (restricted)
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  3. Ricardo Caballero & Arvind Krishnamurthy, 1999. "Emerging Market Crises: An Asset Markets Perspective," Working papers 99-23, Massachusetts Institute of Technology (MIT), Department of Economics.
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  4. Dornbusch, Rudiger, 1982. "Stabilization policies in developing countries: What have we learned?," World Development, Elsevier, vol. 10(9), pages 701-708, September. [Downloadable!] (restricted)
  5. Guillermo A. Calvo & Allan Drazen, 1997. "Uncertain Duration of Reform: Dynamic Implications," NBER Working Papers 5925, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-55, December. [Downloadable!] (restricted)
  7. Mendoza, Enrique G., 2000. "On the Benefits of Dollarization when Stabilization Policy Is Not Credible and Financial Markets are Imperfect," Working Papers 00-01, Duke University, Department of Economics. [Downloadable!]
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  8. Reinhart, Carmen M. & Vegh, Carlos A., 1995. "Nominal interest rates, consumption booms, and lack of credibility: A quantitative examination," Journal of Development Economics, Elsevier, vol. 46(2), pages 357-378, April. [Downloadable!] (restricted)
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  9. Calvo, Guillermo A, 1986. "Temporary Stabilization: Predetermined Exchange Rates," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1319-29, December. [Downloadable!] (restricted)
  10. Perotti, Roberto, 1996. "Redistribution and Non-consumption Smoothing in an Open Economy," Review of Economic Studies, Blackwell Publishing, vol. 63(3), pages 411-33, July. [Downloadable!] (restricted)
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  12. Reinhart, Carmen & Calvo, Guillermo, 2000. "When Capital Inflows Come to a Sudden Stop: Consequences and Policy Options," MPRA Paper 6982, University Library of Munich, Germany. [Downloadable!]
  13. repec:cup:macdyn:v:2:y:1998:i:4:p:443-55 is not listed on IDEAS
  14. Rodriguez, Carlos Alfredo, 1982. "The Argentine stabilization plan of December 20th," World Development, Elsevier, vol. 10(9), pages 801-811, September. [Downloadable!] (restricted)
  15. Helpman, Elhanan & Razin, Assaf, 1987. "Exchange Rate Management: Intertemporal Tradeoffs," American Economic Review, American Economic Association, vol. 77(1), pages 107-23, March.
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  16. Uribe, Martin, 1997. "Exchange-rate-based inflation stabilization: The initial real effects of credible plans," Journal of Monetary Economics, Elsevier, vol. 39(2), pages 197-221, July. [Downloadable!] (restricted)
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  17. Drazen, Allan & Helpman, Elhanan, 1987. "Stabilization with Exchange Rate Management," The Quarterly Journal of Economics, MIT Press, vol. 102(4), pages 835-55, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Aysan, Ahmet Faruk, 2006. "Distributional Effects of Boom-Bust Cycles in Developing Countries with Financial Frictions," MPRA Paper 5484, University Library of Munich, Germany. [Downloadable!]
    Other versions:
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